Tech Today: Amazon to $2,600? Netflix’s Dominance, Dumping Altaba

Amazon to $2,600?

Shares of Amazon.com (AMZN) are up $5.90 to $1,748.97, after Morgan Stanley’s Brian Nowak reiterated an Overweight rating, and a $1,700 price target, writing that he can see the stock reaching as high as $2,600.

Nowak is awed by Amazon’s scale: He expects the company to generate $25 billion worth of Earnings before interest and taxes, or Ebit, this year, “to invest at record levels."

"Consider that (by our math) Amazon's advertising + AWS + Subscription EBIT this year ($24.5bn) will be ~17x greater than AMZN’s total EBIT in 2010."

His point is that “over the long-term” the rise of the Amazon business keeps giving the company more and more ability to "invest and deliver higher profitability."

Nowak’s estimates for the June quarter and the September quarter, for Ebit, are 14% and 47% higher than the Street, he points out, at $5.4 billion and $6.4 billion.

His high-end scenario of $2,600 would come in if Amazon Web Services were to become a business with a $366 billion enterprise value, which would make it the second-largest segment of Amazon behind the $488 billion enterprise value of the third-party-goods operations.

Netflix Is That Dominant Leader

It’s a big day for transfer of coverage. Doug Mitchelson at Credit Suisse takes over a bunch of media names from Stephen Ju, including coverage of Netflix (NFLX), whose shares he raises to Outperform from Neutral, with a $500 price target, up from $300.

To Mitchelson, key debates over Netflix include whether the competition, such as established media companies introducing streaming services, hamper Netflix.

He seems to think not, pointing out that HBO, the "first U.S. premium pay service,” has "never seen its clear leadership challenged, and its lead in profitability has been only widening over time."

He thinks it will be the same in the "global streaming SVOD marketplace,” and that Netflix will "enjoy unchallenged leadership and disproportionate scale benefits."

Among other names, Mitchelson starts coverage of Disney (DIS) at Neutral, CBS (CBS) at Outperform with a $66 price target, Comcast (CMCSA) at Neutral, and Sirius XM Holdings (SIRI) at Outperform.

He starts Alphabet, Facebook and Spotify at Buy, starts Twitter at “Reduce,” and everything else is a Neutral rating. Kelley’s thesis on the big names is basically “the big get bigger,” and he makes an analogy to Dodd-Frank and the banks: "With large audiences already in place, the large platforms (Google and Facebook, in our coverage) are best positioned, in our view, and we expect the newly regulated industry to embolden these incumbents, consistent with recent history (parallels to Dodd-Frank)."

The trailing stock performance of Alphabet and Facebook suggest there is "continued uncertainty around how regulation and government probes into business practices will impact these platforms,” but he expects those regulatory concerns will "reverse course."

As for Spotify, they have “become the market leader in streaming music despite intense competition from the large tech platforms,” and he so they’ve shown they can “run with the Big Guys."

"We also believe the advertising business will be a greater contributor over time and view the self-serve platform as differentiated."

As for Twitter, he thinks expectations for “monetization” have gotten a little too exuberant. "Our main divergence from the Street is our monetization level starting in 1Q19; after four quarters of annual declines, 1Q18 monetization saw outsized growth, with tougher comps that we do not believe are being taken into account."

Kelley’s conversations with people in the advertising field have elicited "positive commentary” about Twitter, but “their remarks point to stability rather than a shift in advertising spend” to Twitter, he writes.

Alphabet stock this morning is up $9.86, or 0.9%, to $1,177, while Facebook is up 63 cents to $204.17.

Altaba No Longer a Tax Haven

Shares of Altaba (ΑΑΒΑ), the spin-off that owns what was Yahoo!’s ownership in Alibaba Group Holding (BABA) and Yahoo! Japan (4689JP), are down $1.68, or 2.21%, to $74.29, after Gabelli & Co.’s Brett Harris this morning cut his rating on the shares to Hold from Buy, after Alataba announced it was selling a portion of its stake in Yahoo! Japan to Japan’s SoftbankGroup (9984JP) for $2 billion.

This deal, following a February deal to sell Yahoo! Japan shares on the open market, makes clear to Harris that “it is now more likely than not that Altaba liquidates its holdings in fully taxable transactions.

"While we see a significant margin of safety in shares compared to the company’s pre-tax NAV, we do not expect AABA to liquidate the majority of its holdings in a tax efficient manner.

"We estimate a $78 PMV should the company be liquidated and recommend investors hold shares.

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